Do not raise interest rates so soon, says former Federal Reserve Chair Ben Bernanke.
Bernanke spoke with CNBC on Monday to discuss a range of economics matters, including the Fed, jobs, interest rates and the stock market. One statement that is garnering most of the headlines is in regards to a potential rate hike.
Bernanke explained that he doesn’t see any reason as to why the United States central bank to rush into a decision to raise rates. First, the inflation target rate is still below two percent. Second, there are still many weak labor numbers being reported.
“[The Fed] has a 2 percent inflation target. It needs to get inflation up to that target,” said Bernanke. “Easy money is justified by the need to get inflation up to the target.”
He also defended his previous policy decisions that the Fed would boost rates once the unemployment rate hit 6.5 percent. Bernanke noted that his comments were taken out of context.
“As a form of forward guidance [in 2012], we promised we would not tighten until at least, at least until we got to 6.5 percent [unemployment report],” Bernanke stated. “We didn’t say we would tighten when we got to 6.5 percent.”
Here is what the USA Today reported in 2012: “The Federal Reserve on Wednesday agreed to keep a key short-term rate near zero until the 7.7% unemployment rate is 6.5% or lower.”
The ex-Fed head warned that no inflation in the long-term will prove harmful to the economy. With that being said, he doesn’t think the Fed should be raising interest rates prematurely. “That doesn’t make any sense. If you raised rates too early and kill the economy, that doesn’t help you.”
Despite a textbook interview, he did admit that the Fed does way too much now. Bernanke conceded that the Fed can’t foresee future bubbles and has been offering easy money, which helps create those same bubbles, because the economy needs it.
“The Fed has been using easy money because the economy has needed a lot of support,” he argued. “A better policy would be a better mix of monetary, fiscal, and other policies. The fact that the Fed is the only game in town means the Fed has to do too much.”
Bernanke later tried to garner sympathy from the general public by telling the USA Today that whenever he saw a bumper sticker read “Where’s my bailout?” it would hurt him.
Boo hoo.
Bernanke is out with a new book called “The Courage to Act: A Memoir of a Crisis and Its Aftermath.” He’s currently on a promotional tour.
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